Companies Act 2013 deals with the formation, regulation, responsibilities, and dissolution of companies. It was introduced to replace its predecessor so that the act is more in accordance with the current corporate scenario. Additionally, this act also aims to encourage growth and development of the economy by simplifying the process of setting up and maintaining an organisation.
To this end, many of the rules and regulations mentioned in Companies Act 1965 has been revamped and modernised. As a result, companies Act 2013 only consists of 29 chapters and 470 sections whereas the Companies Act 1956 had 658 sections and 7 schedules.
Companies Act 2013 has defined company as any entity which has come into existence under this act or any other company Act. The main types of company that has been mentioned in this act include –
One-person Company – It is a type of company which has only one person as to its member.
Private Company – A type of company which can have maximum members up to two hundred and a minimum of two is known as a private company. Features of a private company are as follows:
A private company can have a minimum share capital of up to any amount as decided by the members.
This type of company cannot freely transfer their share to the public.
Public Company – This refers to those companies where 51% or more shares are held and regulated by central or state governments. Furthermore, this type of company can issue shares to the public. Minimum seven members are needed to form a public company.
Incorporation of Company
Companies Act 2013 also mentions in detail the essential regulations that need to be followed while registering a company under this act. These rules and regulations are discussed below –
First, the company needs to choose a suitable name with the last words being either private limited (in case of a private company) or limited (in case of a public company).
However, the member needs to keep in mind that the name must not be similar to any other company already registered under the Companies Act 2013. Moreover, the name should not be considered offensive under law or is undesirable by the Central Government.
Members can ensure that the name chosen for their company does not violate the provisions of names and emblems stated under the prevention of Improper Use Act, 1950, through the name-checking services provided on the official website of the Ministry of Corporate Affairs.
An application should be made along with fee and proper documents to the registrar for approval and reservation of the name under Companies Act 2013.
After applying, the name will be reserved for sixty days from the application date.
The members then need to fill out form numbers 1, 18 and 32 to apply for registration.
Memorandum and articles of association should be drafted and then verified by the Registrar.
Memorandum and articles of association should be stamped and signed by all company members in presence of one witness.
Members also need to furnish details such as an address, occupation, father’s name, shares subscribed, etc.
After the above steps are complete, applicants can log in to the official web portal and submit the forms 1, 18, 32, memorandum and articles of association along with other mandatory documents.
Important Sections under the Company Act
The Companies Act 2013 also specifies the responsibilities of a company in certain circumstances within the following sections –
Section 73
Companies are barred from inviting or accepting any kind of money deposits from the public under Section 73 of Companies Act 2013. Exceptions under this rule include companies like financial institutions, NBFCs or any other companies specified by the Government of India and the RBI.
Section 135
A company which has a net turnover of Rs.5 hundred crore or more in the preceding year is required to form a corporate social responsibility committee under Section 135 of Companies Act, 2013. The committee must have three or more directors, out of which one should act as an independent entity.
Section 139
A company at its first general annual meeting must appoint an auditor under the regulation of Section 139 of Companies Act 2013. The auditor should hold office for five annual general meetings, starting from the conclusion of the AGM in which he or she was appointed.
Section 180
Board of directors can sell, lease, or dispose of any undertaking of a company only with the consent of the whole company, as per Section 180 of Companies Act 2013.
Section 185
According to Section 185 of Companies Act 2013, a company cannot offer any loan directly or indirectly to any of its directors, or any other individual or entity in whom the director is interested.
Section 186
As per Section 186 of Company Act 2013, companies are not allowed to carry out more than two layers of inter-corporate investment.
Section 188
A public or private limited company cannot carry out any kind of transactions such as selling, disposing of, leasing, buying of property or land, availing or providing services with a related party under Section 188 of Companies Act 2013. Appointing a related party to any place which is profitable to the company is also prohibited.
Section 189
As specified under Section 189 of Companies Act 2013, more than one registers should be maintained, containing details of arrangements in which directors are interested, as applicable under Sec 185 of Companies Act 2013 and 188.
Section 197
Remuneration of directors of a public company must not be more than 11% of net profits earned by the company in a financial year, according to section 197 of Companies Act 2013.
The above-mentioned piece paints a brief picture of India’s Companies Act. Every organisation has to fulfil the above-mentioned criteria to successfully register as a company.
FAQs on Key Provisions of the Companies Act, 2013
1. What are the main provisions of the Companies Act, 2013?
The Companies Act, 2013 introduced several significant provisions to modernise Indian corporate law. Key provisions include the introduction of the One Person Company (OPC), mandatory Corporate Social Responsibility (CSR) for certain companies, enhanced duties for directors, stronger protection for minority shareholders, and the establishment of the National Company Law Tribunal (NCLT) for faster dispute resolution.
2. What is a Memorandum of Association (MoA) as defined by the Companies Act, 2013?
A Memorandum of Association (MoA) is the foundational legal document of a company, often called its charter. It defines the company's constitution and scope of activities. It contains essential clauses that outline:
- The company's name (Name Clause)
- The state where the registered office is located (Domicile Clause)
- The main objectives of the company (Object Clause)
- The liability of its members (Liability Clause)
- The authorised share capital (Capital Clause)
3. What is the difference between a Memorandum of Association (MoA) and Articles of Association (AoA)?
The key difference lies in their scope and purpose. The MoA defines the company's relationship with the outside world and sets its boundaries, which it cannot cross. In contrast, the Articles of Association (AoA) contain the internal rules and regulations for managing the company's day-to-day affairs. The AoA is subordinate to the MoA; any clause in the AoA that contradicts the MoA is considered void.
4. How did the Companies Act, 2013 change the concept of a One Person Company (OPC)?
The Companies Act, 2013 introduced the concept of a One Person Company (OPC) for the first time in India. This provision allows a single individual to form a company with the benefit of limited liability, which was previously only available to associations of two or more people. The main purpose was to encourage individual entrepreneurs and unorganised sector businesses to enter the formal corporate framework.
5. What are the key provisions for corporate governance introduced in the Companies Act, 2013?
The Act of 2013 significantly strengthened corporate governance norms. Key provisions include defining the duties and responsibilities of directors more clearly, mandating the appointment of at least one woman director for certain classes of companies, requiring the formation of an Audit Committee and a Nomination and Remuneration Committee, and establishing a vigil mechanism (whistle-blower policy) to report unethical behaviour.
6. Why was the concept of Corporate Social Responsibility (CSR) made mandatory under the Companies Act, 2013?
The concept of Corporate Social Responsibility (CSR) was made mandatory to ensure that profitable corporations contribute to the social and environmental well-being of the communities they operate in. The provision requires companies meeting certain financial thresholds (net worth, turnover, or net profit) to spend at least 2% of their average net profits on specified CSR activities. This shifts the responsibility from being voluntary to a legal compliance, promoting sustainable and inclusive growth.
7. What types of companies can be formed under the Companies Act, 2013?
Under the Companies Act, 2013, companies can be broadly classified into three main types:
- Private Company: Restricts the right to transfer its shares and limits the number of its members to 200.
- Public Company: Is not a private company and can offer its shares to the general public.
- One Person Company (OPC): A type of private company that has only one person as its member.
8. What is the importance of the 'corporate veil' concept, and when can it be lifted?
The concept of the 'corporate veil' establishes that a company has a separate legal identity distinct from its members or directors. This is important as it limits the liability of the members for the company's debts. However, the Act allows for this veil to be 'lifted' or disregarded by the courts in certain situations, such as to determine the character of the company, prevent fraud or improper conduct, or where a company has been formed to evade legal obligations or taxes.
9. How does the Companies Act, 2013 protect the interests of minority shareholders?
The Act of 2013 introduced robust measures to protect minority shareholders. Key provisions include the right to file class action suits against the company and its management for fraudulent activities, stricter rules for approving related party transactions that could harm their interests, and making it easier for them to approach the National Company Law Tribunal (NCLT) in cases of oppression and mismanagement.
10. What are the rules a company must follow while selecting its name under the Companies Act, 2013?
When selecting a name, a company must adhere to specific rules to ensure it is unique and appropriate. The name should not:
- Be identical or too similar to the name of an existing registered company.
- Be considered undesirable or offensive by the Central Government.
- Violate the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950.
- Give a false impression of being connected to or having the patronage of the government.
